Labyrinth: A Novel Based On The Jim Henson Film is the novelization of the film of the same name by ACH Smith, which was first published in the USA by Henry Holt to tie-in with the film's release in June 1986. ... The novelization is currently out of print, but has been transcribed and can read here.

What book is Sarah reading in the labyrinth?

In the novelization (the real novel by A.C.H. Smith) Sarah's mother is a stage actress, so it makes me think Sarah is acting out a play like her mother does for a living. Also I referred to the Read-Along Storybook which states, "She was memorizing lines from a play called 'The Labyrinth. '"

Did Jareth really love Sarah?

He appears to be very domineering when given the opportunity, with his main goal following Sarah's defeat of him being able to make her forget her own dreams and bend to his will. However, due to the fact that he lets her leave to follow her dreams at the end of the series, this proves Jareth truly does love Sarah.